Editor's Note: Charles A. Campbell, author of the “Fuel Purchase Management Handbook,” says trucking companies are letting thousands of dollars a year in savings pass them by simply because they aren't using consistent fuel buying strategies over the long term. As he nears retirement, Campbell wants to share the basic building blocks fleets can use to create fuel purchasing plans. This article is based on his book, as well as an interview with Campbell.
With the industry facing record-high diesel prices — over $3 a gallon in many parts of the country — fuel management strategies have never been more critical than they are today. What's imperative to keep in mind, however, is that effective fuel management is not the sole responsibility of the fuel manager. Rather, it should involve all the key players in trucking operations, including drivers, accountants and top-level management.
Many fleets, especially smaller ones, don't have the luxury of making this one person's full-time job; it's often something that's juggled along with numerous other responsibilities. Without support for fuel management strategies from the top down and the bottom up, potential savings from improved fuel purchasing plans can fade away, reducing a fleet's bottom line.
STEP 1:
UNDERSTAND THE BASICS
Fleets must recognize the twin goals of a good fuel purchase management plan: to minimize a fleet's net fuel purchase costs, while providing drivers with fueling facilities that meet a carrier's standards for amenities and quality. If refueling decisions are made based solely on price, without taking driver needs into consideration, fleets risk losing their drivers.
Even more important, however, is to recognize that effective fuel purchasing management is not a “one time” project but an ongoing program. It's also just plain hard work, because it requires the person or people put in charge of fuel purchase management to constantly call individual truck stops and chains to negotiate discounts or rebates, while staying abreast of policy changes that affect them.
It's also important to find out if drivers are having any problems with the fuel purchase program, and make changes if necessary. Drivers are also the best source of information in terms of which truck stops are acceptable. A fuel purchasing program only works if there is driver cooperation and compliance.
Why is all of this so important? A tractor operating 110,000 miles per year, with fuel economy of 5.5 mpg, uses 20,000 gallons of diesel annually. Each one-cent savings in the cost of a gallon of fuel represents a $200 savings per year per tractor. Our research indicates that fleets without active fuel purchase management plans could save five cents a gallon per year, or $1,000 per tractor. For a fleet with 100 trucks, that's $100,000 a year.
STEP 2:
APPOINT A FUEL MANAGER
To design and manage an effective long-term fuel purchasing strategy, someone needs to be assigned to the job. Someone should be the point person for focusing on fuel purchasing to help form, analyze, and ultimately be responsible for enacting the program. That person should be the central contact when staff and drivers need information about fuel purchasing, he staff and drivers in terms of fuel process information, as well as the liaison with outside vendors and suppliers.
At the very least, the person in charge of developing and maintaining a fuel purchasing strategy must have analytical skills and an understanding of spread sheets or online fuel calculators.
Because the pump price is not an accurate reflection of the true per-gallon price, fuel managers have to be able to understand state fuel taxes and associated cost, plus fees tacked on by truck stops, so they can calculate the actual base price per gallon. This will enable them to make “apples to apples” comparisons between states and truck stops. This is critical because small per-gallon savings can yield large returns.
Good communication skills are also essential since the value of the program and what needs to be done must be made clear to upper management, administrative staff, and drivers. Effective communication is especially important in getting and maintaining driver support; their acceptance is vital for the program to work over the long haul.
The ability to negotiate is also a must. Fuel managers must be able to deal with multiple fuel suppliers in a fair way, while also looking out for the carrier's best interests.
Step 3:
SET UP A LIMITED NETWORK
Since you can't control fuel costs if drivers are allowed to refuel anywhere, a limited purchase network is key to an effective fuel management strategy.
It not only ensures that purchases are made at truck stops with the lowest net prices, but allows carriers to concentrate purchase volumes. This helps them command higher levels of discounts and/or rebates.
A basic network is made up of primary stops supplemented by emergency stopping locations, as well as refueling points near major customers. Most carriers can operate with little difficultly within a network of truck stops located 400 miles apart, although some opt for spacing as far as 800 miles or as close as 200 miles. If a fleet chooses locations that are about 200 miles apart, they will probably be able to provide total coverage across the U.S. with fewer than 200 locations.
A caveat: You must get drivers to use the network willingly or the strategy won't work. You can't simply say, “Here it is, guys — these are the only places you can refuel now.” The reality is that while drivers don't want to waste money, they also don't want to go to cheap dumps to refuel. Sure, you might save a half-cent per gallon, but you'll spend more time and energy trying to get drivers to use the less appealing locations, and antagonize them in the process.
Compromise is the key. Your goal is to increase volume so you can get bigger discounts, yet still keep drivers happy. Even if you have to pay a penny or two more per gallon, providing drivers with amenities like free showers, decent food, laundry facilities and more room to park, everyone wins.
Step 4:
USE “EX-TAX” PRICING
Understanding the concept of “ex-tax” pricing is essential for effective fuel management. Without it, you can't accurately compare diesel prices between states.
Every truck traveling through a state is required by law to “buy its way through,” meaning it's supposed to buy as much fuel as it consumes while traveling through the state.
To simplify the collection process, states use quarterly fuel tax reporting. Based on the number of miles traveled in the state during the quarter, as well as the fleet's average fuel economy figure, the state calculates the number of gallons a fleet used. If gallons used is more than gallons purchased, the carrier owes the state tax on the difference. If more fuel is purchased than used, the state owes the carrier a tax credit.
Let's say a fleet will travel a total of 11,000 miles one quarter, half in Ohio and half in Kentucky. At 5.5 mpg, the fleet will need 2,000 gallons of diesel, and the fuel purchase manager must decide where to buy it. Using diesel prices from two years ago, which were $1.579/gal. in Ohio and $1.499 in Kentucky, it seems that fuel in Ohio is 8¢/gal. higher.
But before you decide how much to buy where, remember that you're going to pay each state its share of the fuel tax, no matter where you actually fill up the tank. In addition, you'll get a tax credit it you buy more fuel than needed for the miles traveled in a specific state.
Fuel taxes can vary considerably from state to state: In Ohio, it's 26¢/gal.; in Kentucky, 13¢/gal.
Since you have to pay the tax one way or the other, what you should look at is the “true” price of diesel in each state. In this example, that's $1.319/gal. in Ohio ($1.579 - 0.26) and $1.369 in Kentucky ($1.369 - 0.13). So it's really 5¢/gal. cheaper in Ohio.
Step 5:
FOLLOW UP
A fuel purchasing strategy should not be static. You should review it at least every six months, if not quarterly, to ensure that it's generating the savings you expect.
Fuel management isn't simple. It takes attention to details such as market conditions, truck stop pricing shifts, and changes in tax rates. But if managed properly, the way a fleet buys it fuel can result in considerable savings over the long haul.
To order a copy of the “Fuel Purchase Management Handbook,” go to www.fleetowner.com
